Analysis of the current strategic situation facing Marks & Spencer.

The problems years in M&S came because the organisation suffered strategic drift. Their marketing strategy did not evolve with the market and were complacent; they continued to use once highly successful marketing strategies when market changes meant they became unsuitable for the market. They took the market for granted which led to the Icarus paradox. The centralised and family style of management resulted in managers being unaware of the rapidly growing problems until too late when drastic measures had to be taken. Most clothes retailers at the time used merchandise manufactured in foreign countries where labour was cheaper to keep cost down and so had lower costs compared to M&S. The use of only British suppliers meant M&S often became dependant on suppliers as they began to sell all the stock they could produce to M&S. This also meant, however, M&S became dependant on these suppliers. Therefore this severely restricted M&S ability to choose suppliers and hence adapt to market changes. The strict conformity of M&S stores at the time meant managers had little control to meet the needs of local customers. The reluctance of M&S managers to change their operating methods meant fitting rooms were not introduced until the 1990's, and assistants were all expected to carry tape measures to help customers with clothes. The M&S management assumed that their clothing ranges were continuing to have a good reputation with the public due to the use of British suppliers and that their clothes were meeting the customers needs without adequate market research. So while M&S aimed to provide high customer satisfaction and meet customer needs for the market, consumer needs and the market changed meaning they no longer met these needs. Fashion became more important and consumers no longer wanted the generic clothing supplied by M&S, so to consumers M&S no longer provided quality merchandise and hence M&S began to lose the important core competency of quality clothing at reasonable prices, which it was built on. Management was top heavy, bureaucratic and male resulting in inefficiency and a lack of understanding of the women's-wear market. Marks had also established a reputation at the time of understanding customer needs and trends. Due to the 'close-knit' family nature of the firm the central buying office began to select the classic style merchandise he approved of and not necessarily what matched the market needs. As M&S executives were employed internally and often held the same job for many years many developed 'trained incapacity' or occupational psychosis were they became stuck in their ways. Problems also began to appear from having one centralised office controlling all the M&S stores and demanding consistency. Richard Greenbury, a chief executive, decided to cut operating costs by employing less full time staff at the stores. These cuts were spread across all stores and not just at the less busy stores, which resulted in many not being able to provide the level of service Marks demanded in his operating fundamentals. The family nature of the firm and aggressive management style again led to store managers trying to please executives as opposed to ensuring profitability. When Greenbury visited stores, store managers brought in all staff despite them being understaffed most of the time. This cover-up meant Greenbury did not see the reduction in service his policy was causing and this gradually led to M&S losing its once strong core competency of high levels of service, a fundamental which much of its success was built on. This coupled with the lack of challenging from store managers about strategies that were producing negative effects led to M&S losing their market share. Surveys by the Money Programme in 1991 showed customers were becoming decreasingly satisfied with M&S. Again, in an attempt to keep the chief executive pleased senior executives covered up these results. Along with this decline in M&S popularity new competition was emerging from both the top and bottom ends of the market. Retailers such as Gap, Oasis and Next sold merchandise as similar prices to M&S but were much more fashionable and hence suited the needs of the evolving market. At the bottom end competitors such as Matalan and supermarket chains began to offer similar products to M&S with similar levels of service but significantly lower prices. These companies began to erode M&S market share and gain its customers as M&S was no longer good value and due to their insistence on using more expensive British sources for merchandise they could no longer compete due to costs and lack of demand for their merchandise. M&S had started an expansion project in the early 1990's to move into overseas markets and had used its standard formula that had given success in previous years. 22 stores had been open in Canada, in America M&S sold under the Brooks Brother name and stores in France were opened with the plan to expand into Europe. After initially boasting a £130m for expansion a year M&S were forced to tell stores to cut spending in 1998. M&S had attempted to expand overseas into foreign markets, which the organisation knew little about. No adequate market research was conducted and it had been assumed that the existing formula, which had worked in the past, would work adequately now. They had not successfully established core competencies overseas and were making a loss. Eventually by 1999 M&S were forced to sell Brooks Brothers and move out of Canada as well as Europe. Stores in Hong Kong and other eastern countries were sold to franchises.

M&S Share Price

The turnaround came in 2000 when a previously highly successful managing director, Luc Vandevelde, was employed as executive chairman of M&S. He introduced many radical changes into the M&S structure and outlined 4 priorities for achieving his objective of better fulfilling consumer needs:

. Creating clear profit centres

2. Creating customer-facing organisation

3. Restoring overseas profitability

4. Building the financial services sector

This stopped the decline in share value and by 2002 the share price had stabilised. M&S could begin to look at opportunities for growth again.

For M&S to be successful again they need to examine what made them successful originally - Simon's Marks understanding of customer preferences and trends. This led M&S to meeting the customers' needs in the market and establishing some very strong core competencies, which over time led to others. However, where M&S went wrong is that they lost touch with the evolving market and hence needs of customers; customer's needs changed but they didn't. To rebuild this success M&S must ensure they know the market exceedingly well and decide what section of the market they wish to procure. By going back to their original fundamentals, examining their existing strengths and deciding on a market segmentation strategy that best matches these strengths, M&S should be able to become profitable once more. Continuous adequate market research must be conducted to ensure M&S does not lose touch again with their target market as another mistake could critically damage the organisation. Today M&S is operating in a highly competitive market where buyers have a relatively high percentage of disposable income and are spending large amounts. This gives them high bargaining power especially since they are well informed about competition and so it is important to use the most cost effective suppliers to be able to save costs and increase profit. With modern manufacturing techniques consumers are expecting high quality even at this low cost. Buyers expect a minimum standard and a market aggregation situation has developed. The large number of substitute products in the market today also helps makes it this highly competitive environment; there are many other retailers competing for both the top and bottom end of the market share. This requires M&S to have an aggressive marketing strategy to regain market share. M&S needs to take opportunities, which build on its existing strengths and be careful about current threats that could potentially lead to more problems. By building on existing strengths or core competencies M&S should aim to strengthen its market position and create new competencies before embarking on a significant expansion programme. Once a number of strong core competencies have been developed M&S can consider risky expansion. A SWOT analysis of M&S gives the following results:

A SWOT analysis of M&S today

Strengths

? Well known

? Good image

? High quality

? Prime Store Locations

Weaknesses

? Image 2-3 years ago was old fashioned

? Brand has been mismanaged

? Foodstuff is becoming dated

? Failed attempt at overseas expansion was very costly

? Lack of market research so misjudgement of customer needs

Opportunities

? Diversification

? Returning to core business

? Possible new foreign expansion opportunities

? Good e-commerce market

? Outsourcing

Threats

? Changing fashion

? Internet taking core business

? Highly competitive market

Some of the original strengths of M&S still exist and these could potentially be used effectively to re-establish the market position and establish organic growth. M&S must still be careful to avoid threats and keep regularly updated on market changes. To ensure M&S does not become out of touch with the market again a more scientific management style would be more appropriate. This would be more democratic and ensure concerns from store managers could easily be communicated to executives and so any potential problems would be identified before it became too late. McGreggor suggested there were 2 styles of management based on results from the Hawthorn experiment by Elton Mayo - theory X & theory Y. Theory X involved treating people as incompetent so all decisions came from the top levels. M&S was run in a similar way. Theory Y involved treating people with a Laizez-faire style of management where managers lower down were given more input into decision-making. The research showed this increase in democracy gave an increase in productivity of the workforce as so M&S needed to adopt this style. To avoid the cases of occupational psychosis which several managers suffered before Dewey suggested rotating people within the organisation to bring in fresh ideas and avoid people becoming set in their ways. The introduction of Vandevelde into the M&S management stabilised M&S so this practice should be continued in the future. In the current market climate a number of options are open to M&S now. These include:

Forming a strategic alliance with another organisation

This would involve an unwritten agreement with other clothes retailers not to encroach on each other's market share. This would allow M&S to regain strength in it's original core business and so ensure it is in a better position to possibly expand into new markets in the future.

Disinvestments

In order to focus all its efforts on the recovery of the UK business, M&S could divest or close non-core businesses and assets, which would allow it to focus only on core business until its market position is regained.

Acquiring of smaller competitors

To lower the level of competition and make trading easier M&S could buy up smaller retailers. This would give M&S more control over the market and increase their market share without making many changes.

For M&S to achieve organic growth and regain the market share they once had they need to firstly strengthen their core profit centres by selling more of their existing merchandise to their current customers. After this M&S can begin to rebuild it's reputation for quality and service and differentiate their products so customers perceive them to be of higher value then the competition. By keeping the price constant this should help take back segments of the market lost to competitors. Once this is achieved M&S can continue to look at options for product innovation. By introducing completely new and original products they can further strengthen their market segments. After this has been completed M&S should begin to market their existing merchandise to attract customers from new market segments through careful promotion planned by meticulous market research. Once they have established a foothold in other market segments they can begin to differentiate their merchandise within that market segment and further strengthen their position. Finally, M&S can begin to once again expand by looking at new product possibilities in completely new markets such as financial services. Therefore I would recommend M&S firstly disinvest loss-making subsidiaries to allow the organisation to concentrate on rebuilding its core business strength. This can be helped by forming a strategic alliance with other organisations not to encroach on each others market for the time-being. Smaller competitors should not be acquired at this stage until M&S is in a stronger financial position.

By Alex Manning

ID: 321244

Words: 2769

References:

Marks & Spencer case study

by Nardine Collier

Exploring Corporate Strategy

By Gerry Johnson & Kevan Scholes

Marks & Spencer Website

www.marksandspencer.co.uk